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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Hemavati Foods Ltd. has a net profit after tax of Rs 40,00,000. Under the Companies Act, 2013 read with Schedule III, which of the following is the correct presentation of 'Proposed dividend' declared by the board after the balance sheet date but before approval of financial statements, as per AS 4?

The dividend is not recognised as a liability at the balance sheet date and is disclosed in the notes. As per AS 4 (revised), dividends declared after the balance sheet date do not create a present obligation at that date, so no provision is made.

  1. ANot recognised as a liability at the balance sheet date; disclosed in notesCorrect
  2. BShown as a current provision in the balance sheet
  3. CShown as other current liability
  4. DDeducted from reserves with a contra entry in the Statement of Profit and Loss

Explanation

Under AS 4 (revised), dividends proposed or declared after the balance sheet date are not recognised as a liability at that date; they are disclosed in the notes. The other options treat it as a present obligation or alter reserves, which is not permitted.

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